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New report looks at Chicago area manufacturing

7/31/2014

Chicago may no longer be the “Hog Butcher for the World” and the “City of the Big Shoulders” as poet Carl Sandburg wrote in his 1914 poem “Chicago,” but manufacturing remains the region’s number one industry according to a new report from the Chicago Council on Global Affairs and HSBC Bank.

Giving a generally positive picture of Chicago’s role as a manufacturing center, the report also contains sobering messages about the challenges the region faces. Chicago “lags behind its potential” the report states, declaring: “Manufacturing in Chicago is an old heavyweight slugger, punching below its weight.”

In recent weeks, business groups have issued warnings about foot dragging on the part of the Quinn administration in adopting new rules for hydraulic fracturing (commonly known as fracking). The new report, while not directly addressing the delays, does reference what it terms the “energy revolution” in the United States. That revolution, it says, is driven by new production of shale oil and natural gas, which promises to significantly reduce costs for manufacturers with big energy bills. That new production and the cost savings are the direct result of hydraulic fracturing.

Among the strengths cited in the report is the city’s “solid downtown core,” which is credited to Mayor Richard J. Daley’s commitment to preserving the Loop area during the 1960s and 1970s. They also cite the city’s location on Lake Michigan and its natural crossroads for rail, highway and air traffic.

However, the authors also point out that exports and employment fell in 2008 and 2009 with the onset of recession and while exports have recovered, Chicago’s employment levels remain below 2007.

In 2001, there were 329,229 manufacturing jobs in Cook County, the largest number of jobs of any industry. By 2012, the number had shrunk to 194,189 jobs, a loss of 135,000 jobs or 41%. In the meantime other areas, such as health and social administration, retail trade and tourism have surpassed manufacturing employment.

In the area of exports, even with the recovery, the report points out that Chicago’s export earnings “are not growing as fast as other major metros.” They point out that Chicago’s seven percent growth rate in exports was only good enough to land the city in 40th place out of the top 100 in the nation.

The report commends a push by Chicago Mahor Rahm Emanuel to double exports by the city’s small and medium-sized businesses (SMEs) in the next five years. But warns that achieving such a goal could be challenging, declaring “an increase in trade activity by SMEs has been a mantra in Chicago for decades, with little to show for it.”

“The government – especially the state of Illinois – has trade offices abroad and regularly runs foreign trips for businessmen, but the average small business can’t afford the time to take advantage of these services,” the report says.

In discussing the future of manufacturing, the report says there is broad general agreement that a heavy emphasis must be placed on “advanced manufacturing,” but then points out “the trouble is that nobody is quite sure what advanced manufacturing means.”

It terms advanced manufacturing “one of the urban economic buzzwords of the day” and says, “at the moment, it has so many definitions that is has almost become meaningless, except for an applause line for economic boosters.”

The report quotes Ned Hill, an economist at Cleveland State University, “an advanced manufacturer is anyone who survived the recession.”

The report’s major recommendation is that the Chicago region and the entire Midwest “needs to take an integrated regional approach to it global future.” It bemoans the fact that states “battle each other constantly to lure companies from each other, instead of leveraging assets to strengthen the region as a whole.”

It’s a sentiment that is easier to agree to in principle than in practice, given that so many of Illinois’ disadvantages have been self-inflicted. High taxes on employers, anti-business rhetoric and policies by the past two governors and a refusal by many to recognize the competitive disadvantage Illinois faces in areas such as workers’ compensation costs have invited and fueled the competition from neighboring states.